Yemen Conflict: Potential Economic Catalyst for Pak

The following article has been published in Daily Nation, dated 06th April 2015

(E-Paper (Print Edition)http://nation.com.pk/E-Paper/lahore/2015-04-06/page-9 )

(Onlinehttp://nation.com.pk/business/06-Apr-2015/yemen-conflict-potential-economic-catalyst-for-pak )

Yemen Conflict: Potential Economic Catalyst for Pak

Prof Dp

By: Omer Zaheer Meer

Strategic decisions by modern states are based on either some principles, agreements, vested national interests or a combination of the above mentioned. A confusion and lack of clarity often results in ruining of opportunities which could otherwise turnaround the situation of a nation. By now, you’d have most likely heard about the conflict in Yemen, a regional dominance affair portrayed as a Shia-Sunni sectarian conflict by the script writers of the new world order for their own vested interests. While a lot has been written on the Yemen conflict in the past few days, a focus on economic prospects of the potential decisions has been somewhat lacking. We’ll address it in this write-up.

Pakistan currently has a vital economic dependency on Kingdom of Saudi Arabia (KSA) led Gulf coalition. The aid provide during sanctions and the $ 1.5 billion “gift” to Pakistan during current Government just last year maybe one-offs but the continuous provision of oil on “deferred payment” and employment opportunities for millions of Pakistanis in KSA and the Gulf region are of a permanent nature helping sustain Pakistan’s economy. Similarly, Pakistan share important economic ties with United Arab Emirate (UAE) whose companies often invest in Pakistan, albeit of extremely favorable terms in semi-Government or Government owned enterprises. Furthermore Pakistan has recently executed an agreement to import LNG from Qatar to meet its energy needs. The Gulf region is amongst major export destinations of Pakistani products. Annual bilateral trade is in billions of $. In economic terms there is an unfavorable trade imbalance in the trade ties mainly due to the import of oil by Pakistan. Furthermore, there is a convergence on security interests between Pakistan and most of the Gulf countries baring the issues with UAE regarding conflict of interests re Gawadar port as outlined below.

On the other hand, while there are just a few thousands Pakistani employed in Iran (fifteen to twenty thousands), the strategic position of it being a neighbor of Pakistan has serious implications for nation defence and thereby resultant impact on defence spending and national budget. While the past has glorious examples of Pak-Iran collaboration particularly during the 1965 war with India, it is an unfortunate fact that due to the non-convergence of economic and regional security interests, Iran has lately been in partnership with Pakistan’s arch rival India. The process exacerbated due to the divergence of interests in Afghanistan and peaked with the launch of the Gawadar project which directly threatened Iran’s vital “Chahbahar” port just like it threatened the prospects of UAE ports more importantly Dubai. The result has been direct economic costs for Pakistan due to delays in making port operational due to law and order situation supported by foreign interests as well as increased defence spending further straining the national resources.

Keeping in view of the above, perhaps it is high time that the strategic decision makers in Pakistan list the vital national interests that can be secured from both KSA led Gulf region as well as Iran as well as to what extent it can offer its co-operation in return depending on existing agreements. It is vital that we think realistically respecting the support and co-operation we’ve received from our allies over the years but sans undue emotions. USA has done the services expected of Pakistan for years at extremely lucrative terms; it would therefore not be unfair or unethical for Pakistan to pursue the betterment of its inhabitants while supporting its allies.

Below are some proposals in regarding what Pakistan can offer considering its own issues and limitations:

  • Pakistan should focus on its ability play the role of an effective mediator to address the concerns of both Iran and KSA just like it did to bring China and USA closer back in the 1970’s.
  • Deploy air support and commanders to lead Gulf forces within their borders (particularly KSA) to ensure effective defence.
  • Deploying its own forces within KSA to protect its borders from outside attacks.
  • As a last resort conduct targeted air-strikes against local militia on formal request from the Yemen Government and KSA led Gulf coalition on the principle of supporting democratically elected government.

What Pakistan can achieve economically in return may include the following:

  • Assurances from both Iran and UAE to stop stirring up trouble in Balochistan resulting in a quicker start of Gawadar project as well as lower spending on counter-terrorism there.
  • Membership of important bodies including GCC with economic implications.
  • Removal of tariffs on Pakistani imports in their countries, with preferential treatment.
  • Attractive deals to secure reliable LNG, LPG, oil, e.t.c. at cheap rates to ensure Pakistan’s growing energy needs are met effectively. Depending on some key factors Pakistan can secure even free supplies for a long period.
  • Offering special nationality packages to Pakistanis working in the countries involved, which can positively influence the foreign exchange reserves of the country.
  • Writing-off of Pakistan’s debts due towards GCC countries.
  • Paying off Pakistan’s other external debts.

This is yet another historic opportunity for Pakistan and it should not be squandered like many in the past. The demands listed above are all very realistic and possible considering the vital role expected of and the possible costs for Pakistan. They’re also much less then what had been taken by the USA for similar services in the past. So if Pakistan is to play the most important role for one of the richest regions in the world, it may as well get due recognition and rewards. After all the law of the nature is such that even brothers working in brothers’ businesses must get rewarded for their work. And what’s better if the rewards are sufficient for one brother while less then what the other was paying to outsiders.

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, chartered financial analyst, qualified fellow accountant and anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk

IMF-driven Policies: Destroying Economy & inciting Revolts

The following article has been published in Daily Nation, dated 16th March 2015

(E-Paper (Print Edition): http://nation.com.pk/E-Paper/lahore/2015-03-16/page-9 )

(Online: http://nation.com.pk/business/16-Mar-2015/imf-driven-policies-destroying-economy )

IMF-driven Policies: Destroying Economy & inciting Revolts

 Prof Dp

 By: Omer Zaheer Meer

Pakistan is going through an economic slump; some would even argue a meltdown. With rampant lawlessness, terrorism, rising inflation and severe electricity and gas load management especially for industry, the economy is in dire need of a revival. Many of these problems were inherited by the incumbent administration from the previous PPP government with the economy on the verge of collapse. It was against this backdrop that the PMLN government decided to go to the International Monetary Fund (IMF) for a $ 6.7 billion loan.

The IMF offered a package based on austerity, asking to cut subsidies in a very short duration, seeking reduced public spending and privatization of national institutions like PIA in addition to devaluation of Pak Rupee.

These measures led to unbearable levels of inflation, making an already tough situation worse. Even the prime constituency of the incumbent Government, the business community has been protesting but at the end of the day they will still be able to simply pass on the effects to the consumer. It’s the masses that would ultimately be hit the hardest. With the industry already in tatters due to the energy crisis, law and order situation and ever increasing input costs, they are shifting base overseas resulting in a flight of local capital. The gigantic increases in the power tariffs until recently were serving to worsen an already dire situation for the local industry. On the other hand national institutions, instead of being revamped and properly managed are being planned to be sold off in non-favorable conditions when they could end up being sold for peanuts.

POL products are treated as a cash-cow for revenue generation, ignoring the super-inflationary effects of increases in their prices. It is indeed ironic that while the prices in international market fell, the benefit was only partially passed on to the consumers in Pakistan and that too owing to the political pressure from the opposition of Pakistan Tehreek-e-Insaf.

While the IMF program may serve to stabilize the national exchequer in the longer term, the economic opportunity costs, resulting unemployment and the high risk of an economic meltdown makes it a non-prudent choice. Instead it is pretty obvious that Pakistan’s economy requires an impetus, a stimulus to revive the economic activity and not the program agreed with the IMF.

While we can give some space to government’s economic team citing the tough challenges they inherited and are facing, what is unfortunate though is that even the steps possible within the ambit of Finance Ministry are not taken. There seems to be a lack of understanding and political will to actually carryout the reforms necessary to resuscitate the failing economy.

Financial management and transparency is one such area. I’ve written before that the manner in which the circular debt of app PKR 500 billion was paid to private power generators and similarly the funds released for Petrol import earlier this year were astounding to say the least. There were no audits, no checks and no proper incentives negotiated for the masses. Whether right or wrong, some sections of the intelligentsia believe these crises to be manufactured, aimed at getting around the checks and balances in order to oblige party financiers and key supporters.

For example, despite claims of around 40 % unused capacity of private power companies, un-tapped owing to the outstanding circular debt, the promised increase in the electricity generation was never delivered despite payment of the same. Pakistan had to approach IMF for $ 6.7 billion to be released over several years, while 75% of that amount was distributed to private power companies without any verification as if it was an immaterial amount. What’s more, the genie of the circular debt in the power sector is back to haunt the nation again.

We must ask the finance ministry why no proper audits were performed? Why could we not negotiate with the power companies the terms for payments in four or six installments with the next installment payable only on achieving an additional power generation as agreed? Furthermore, there has been no effective national energy conservation drive or campaign to cut the line losses to the minimal possible. Similar mismanagements resulted in the infamous petrol crises too.

Furthermore, the painful but obvious fact remains that the necessary reforms required to revamp the tax system and structures are not been followed either. Instead of extending the tax base by bringing in Agriculture and other exempt areas in the tax net the existing base is being taxed more along-with higher indirect taxes imposed on the common citizen, both of which are disastrous in the long run. Had we actually taken the tough but necessary decision to broaden our tax base and executed proper financial management especially in the power circular debt payment we would not need to go to the IMF. The lack of these reforms has led to exorbitant borrowing with the internal borrowings alone reaching the mark of a trillion.

Alarmingly, there are noises about a very powerful industrialist from Punjab with stake in the power sector besides others, dictating the economic policies of the current government. On the backdrop of this, a list of public sector power companies was also announced for privatization. Guess where are they based? Yes, all of them are based in Punjab. The Prime Minister needs to take corrective measures. As a minimum the finance ministry should be directed to undertake independent forensic audits into all future payments as well as those made till now including circular debt payments to the power companies in addition to the implementation of other measures to ensure transparency. Corruption scandals of the likes of the last PPP Government should not be tolerable anymore. This, along with tough decisions to extend the tax base with a focus on direct instead of indirect taxation and proper financial management can still lead to a turn-around.

The biggest question is will the present Government review its IMF driven economic policies and carryout the necessary reforms while providing relief to the ordinary citizen or will it continue to focus exclusively on temporarily filling up the coffers of the national exchequer without any bearing to the economic condition of a common man and risk a revolt? It should remember empty stomachs breed anarchy.

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, chartered financial analyst, fellow chartered certified accountant and certified anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk